A limit order is an order placed in the market that requires the broker to, either buy lower than the current price or sell higher than current price, on your behalf! This is usually referred to as “catching a falling knife”. But I like to see it as getting the train at the first stop. Trends end and begin on a higher timeframe than the you are currently trading. When you look at it that way, limit orders are not that terrifying.
The issue is, as humans, we do not allow ourselves the joy of being comfortable in discomfort! We always require some confirmation. And that is our downfall. Every time we put our hard-earned cash on the line through a broker, we are entering a battlefield! But we are too scared to advance, in case we are wrong. So we wait. And by waiting, we give away our only advantage, low risk. Entering a position AFTER a confirmation, usually leads to wider stop losses and smaller profit targets.
I recently went on a stag weekend with a group of guys and we decided to go paintballing (I am 25 years of age and that was the first time I had ever gone paintballing). Now, while it’d be nice to think that we would leave the battlefield in the same state that we went in, the reality was that we were going to take hits (well, I took one hit all day and we won by a landslide. But that isn’t the point). So we were mentally prepared to be bruised. My then fianceé (now wife) said I was silly to choose to be bruised a week before the wedding! But I knew what I was signing up for and I was willing to do it all the same.
And this is the same in trading. No matter what you think about your strategy, you will take hits. Some of your cash will, at some point or the other, find its way into the hands of your broker! But we must be willing to be comfortable with that. It is only then that we can come out victorious.
When I place a limit order, I am going against every human inclination and instinct. But most importantly, I am going against the crowd. I am not waiting for confirmation of higher prices before buying. I am telling the market that I will only buy when price is that low! I only want bargain prices. The trader must always be willing to go the road alone. And I go into each trade knowing that there is the chance that I am wrong. So, I limit just how wrong I can be with a stop loss order.
Conditioning Your “Self”
Everything we are and everything we will be is a result of conditioning. From our conception, we are fed into the hopper and processed. We are given education, religion, social class, morals and principles, laws, rights and so on. We are told what is socially acceptable and what isn’t. We are conditioned to conform or be punished.
The reason we conform to conditioning is because there is usually a trigger and a response accompanied by a reward or punishment. Brian Tracy talks about conditioning in his book, No Excuses. He says; “When you were a child and you received money, the first thing you thought of doing was to spend that money on candy. Candy is sweet. Candy is delicious. As you grew older, you developed what psychologists call a “conditioned response” to receiving money from any source”. The book goes on into more detail.
The point to be drawn here is that our response to our conditioning is based on how we receive it. If the consequence is enjoyable, we tend to repeat said activity because we get “candy” (so we spend the money because candy is sweet). If it isn’t enjoyable, we seldom ever go back to it! This is why it is easy to conform. We believe the treats are better than the punishment.
The problem is, trading requires us to be non-conforming. It requires us to welcome the losses as part of the game - to want the pain. We are sometimes so afraid to take a loss that we will give up the potential reward. This is regarded as risk-averseness. It is a conditioning that goes back to school.
Remember in school when you got the wrong answers in a test or assignment? Remember when you misbehaved and got sentenced to detention? (My Africans will be familiar with getting flogged). You were always punished for being wrong and rewarded for being right. So your conditioning triggered you to do only what was considered right. After all, no one wants detention!
But it is that willingness to be wrong that is required if one is to succeed as a trader! One must be willing to put a small percentage of capital at risk for greater reward. We cannot be successful if we are so afraid of being wrong, that we close out a trade prematurely or move stop losses to breakeven every time we see a candle in the opposite direction.
Trading takes mental toughness.
Sticking To The Plan Even When Things Are Not Looking Good
I cannot believe I am quoting Ellen DeGeneres here, but Ellen says “It’s failure that gives you the proper perspective on success”.
Unfortunately, trading isn’t easy. Your strategy could be amazing on paper. You put in all the hours. You do all the studying. Then you bring your hard-earned cash to the table and begin to pour it all down the drain. And it is at this time that you get the “options”. You have the option to;
• try something new,
• negate a rule or two,
• stick with the plan,
• or quit and go back to your safe job with the pension scheme.
The list is not exhaustive. But it is genuine. These are real options. Your attitude towards failure and being wrong is what will determine which of those options you end up going for! But if you do choose to stick with it, well done. We have all been there.
The fact that you have faced your fears and foes, and you have come out still fighting, shows that you can go the distance. Too many people are swept aside by a string of losses. They are emotionally attached to money. It is just money. It is all made up. Pieces of paper with pictures on them.
But those who quit usually do so just as the tide is about to turn in their favour. They hit rock bottom and decide to die - rather than climb their way up. Trading, as is life, is full of ups and downs. The market will tear you apart, chew you up and spit you out if you do not have the perseverance and persistence to see it through.
The best way to get over the hump is always to align yourself with the grander vision. Whether it is to provide for your family, or to retire early. Focus on the WHY. One who knows the WHY can overcome any HOW. Another way to overcome doubt and dejection when things are not going to plan is to start each day with a positive thought. Think of anything. It could be the birth of a relative. Or your better half. A third way, is to believe in yourself. Easier said than done. But it is as simple as that. You do not need an Oxford education to do this.
And if you are currently in this rut, this is your wake up call. The market isn’t your friend. Your opinions do not matter. The only thing that matters is what the charts are saying. Everything else is noise. Get the right education, and the rest will fall into place.
Failure is not the opposite of success. It is part of it.